Wells Fargo fraud just ‘tip of the iceberg’ for banks in ‘sales culture,’ UNF professors say

Is your bank guilty of the kinds of abuses that recently resulted in mass firings, millions of dollars in fines and uncounted bad publicity for banking giant Wells Fargo?

It probably is, according to Drs. Paul Fadil and Bruce Fortado, two University of North Florida management professors who accurately predicted such a scandal in a study they completed six years ago. In fact, they say, wholesale creation of phony bank accounts and other fraudulent activities against customers uncovered in the Wells Fargo investigation could well be just the “tip of the iceberg.”

Based on their five-year study of the “sales culture” that has become prevalent in the banking industry, Fadil and Fortado suggest that other major national and regional banks also are at risk of being implicated in schemes similar to those uncovered at Wells Fargo.

Their study, conducted at a Jacksonville bank that is among the nation’s 10 largest, was concluded in 2010 but not published until 2014. That’s because it was rejected by a number of journals before one finally agreed to accept it, said Fadil, chairman of the Department of Management at UNF’s Coggin College of Business.

“The bank we did this on was not Wells Fargo, but was a bank in that realm that everybody would know if we named it,” he said. “And basically all the stuff Wells Fargo is being penalized for today, this bank is doing the same thing. … Twelve-dollar-an-hour tellers never being given any training and being squeezed by managers.

“It’s not easy being a whistle-blower,” Fadil said. “We had to overcome a lot of obstacles to get this published. Now we look like prophets. We said this was coming. And from what we’re seeing, there are a lot more banks doing it. Wells Fargo may be the first to get caught, but they’re not the only one doing it. This is truly just the tip of the iceberg.”

The two professors’ five years of research, from 2005-2010, looked closely at the bank, at which they were given full access to low-level employees as well as mid-level managers. The only condition was that the bank could not be named in the report of their findings. Instead, Fadil and Fortado call the subject of their study “Amalgam Bank.”

And not surprisingly, they say, their examination of the bank’s sales culture uncovered practices quite similar to those that have resulted in fines of $185 million against Wells Fargo, along with the firings of 5,300 low-level employees and now the resignation of the chairman and chief executive officer, John Stumpf, who quit on Oct. 12.

Several banks contacted by The Times-Union declined to comment about the professors’ study and conclusions or to discuss their own sales practices.

Fraudulent practices most prevalent in the professors’ study were the opening of deposit and credit card accounts for people who had no idea the accounts were being set up, including family and friends of bank workers who were under increasing management pressure to sell more bank services, Fortado said.

Ironically, Fadil had the opportunity to see such fraudulent activity take place at a Wells Fargo office in Jacksonville after his study was completed, but well before regulators announced their actions against the bank.

He took an elderly acquaintance into the bank to obtain a safe deposit box, but noticed that it seemed to take an unusually long time to complete the transaction.

“They held us in there for an hour and fifteen minutes, and took a lot of personal information that they supposedly needed for a safe deposit box,” Fadil said. “Even though they took so long, we thought they must know what they’re doing.”

But about a week later, Fadil’s acquaintance received a new Wells Fargo credit card in the mail, with a $17,000 line of credit, that she neither wanted nor had applied for.

“We were stunned,” he said, “She’s anti-credit card, and pays cash for everything. But they ran her credit without authorization and set up this new account. How dare they? I saw it as an invasion of privacy.”

But considering what Fadil and Fortago found during their study, Fadil wasn’t completely surprised by what he witnessed at Wells Fargo. It was just further verification of what the professors found then they looked into the sales culture in their study bank, they said.

In the preface to their report on the study, published in the Competitiveness Review, the professors wrote:

“The promotion of a ‘sales culture’ in U.S. banking initially surfaced in the mid-1980s. After deregulation, bank managers had to begin competing with other more marketing-oriented financial service operations. The tellers have the most customer contact in a bank, so they would start the sales process.

Sales duties were assigned to the tellers – most of whom had only a high school education and were paid little more than minimum wage – and they were thrown into the process with very little or no training, Fortado said.

Even the formerly drab interiors of the bank’s offices were changed to help create a sales-friendly atmosphere.

“Dark woods, barred teller cages and cold marble counters gave way to warm colors in crisp, clean and open environments,” the study noted.

Unrealistic sales goals translated into fabrications.

“One interviewee asserted customer service representatives were inflating sales by opening accounts using the names of babies and co-workers,” the study said. “Another teller noticed while processing a transaction that a service representative had opened and closed numerous checking accounts for her mother. The amounts of the money deposited were small. The sales program did not track account longevity, so such tricks could be used.”

Employees feared for their jobs, although firings were not common.

“Each teller was expected to obtain three sales referrals per day,” the report noted. “Those who fell short one day could make it up on another day. No one had been fired for falling short on referrals. However, this could impact one’s appraisal. Those given low appraisals could not post for promotions. They had to improve to become eligible once again.”

Customers also were inconvenienced by the intense sales efforts.

“The tellers were required to make a sales pitch to each customer,” the study said. “To do a good job, this took a number of minutes, not just a few seconds as management claimed. When there were 10 or more people waiting in line, adding a number of minutes to each transaction greatly slowed service. By the time these customers got to the counter, they were generally in no mood to hear a sales pitch. … Tellers were still expected to maintain the same speed and accuracy.”

Former Wells Fargo employee Margaret Kane, who now runs a consulting firm that helps banks improve their customer service, said the sales pressure when she worked for the bank was intense.

“Anytime there are sales goals in any type of organization, you’re going to see falsified records,” said Kane, president and CEO of California-based Kane Bank Services. “Some people will cheat. It’s a matter of degree. Wells Fargo was an extreme, and the company did not do enough to stop it.

“The unbelievably high sales pressure and techniques had developed over a long period and were flat-out extreme,” she told the Times-Union. “But I don’t think other banks operated entirely the same way as Wells Fargo. There, it had to do with the leadership. They drank their own Kool-Aid and believed they were that much better than everyone, that they could put these astronomical numbers on the books. … They didn’t have enough of a balanced approach to the sales process. It’s one thing to have unit-sales goals, but if that’s all you’re measuring, you can get into trouble.”

Kane, who holds a doctorate from Harvard University, said the abusive sales practices she saw every day at Wells Fargo were “far more widespread than people realize.”

“One person asked why he couldn’t have just an ATM card – why did he have to have a debit card, too, and he was told that he had to have both. But that’s not true – I have an ATM card that isn’t also a debit card. It’s an unethical sales practice to say we don’t have that.”

Kane, though, doesn’t share Fadil and Fortado’s view that Wells Fargo’s fraudulent sales practices might be widespread throughout the industry, although she said she had not seen their study.

“I don’t see this happening to this extent to other banks,” she said. “But I could be wrong. I think every sales organization is going to encounter some problems. But I don’t think there will be other banks with problems the same magnitude of Wells Fargo’s situation.”

Still, Kane said, the Wells Fargo scandal will tarnish other banks.

“This will have very serious repercussions for the entire industry, regardless,” she said. “There is going to be a tendency to overreact rather than not react. That’s already evident in the fact that Wells Fargo eliminated all of its sales goals. Because of that, thousands of people will lose their jobs.”

There can be a fair, honest and productive balance between sales and service in the banking industry, Kane said.

“The thing I feel strongly about is that financial services are sold, they are not bought,” she said. “People in the bank branches must proactively offer services, and there is nothing wrong with a sales culture in banking per se.

“But there must be doable, reasonable sales goals, with the creation of true customer value, along with good audit and sales-quality processes. If you have those three things in place, the value of the sales culture is very strong for customers and shareholders.”

Fadil, though, believes the way people tend to trust banks and bankers can lead to breaches like those uncovered in their study and in the Wells Fargo investigation.

“When you go into a bank for any reason, they tend to your private stuff the way a doctor treats our private stuff,” he said. “And we give banks the benefit of the doubt that what they’re doing is in our best interests. But that’s not always the case.

“This Wells Fargo thing is like finding a cockroach in your house,” Fadil said. “You don’t just kill that one cockroach, because you know there are more where that one came from. You go buy the stuff to roach-bomb your entire house.

“Every bank is doing this,” he said. “Wells Fargo just got caught.”

Chambers Williams, (904) 359-4370

Wells Fargo fraud just ‘tip of the iceberg’ for banks in ‘sales culture,’ UNF professors say- By